Matt Kean: a Liberal takes up climate

Bob Carr: Matt Kean has been the Minister for Energy and Environment in New South Wales since April 2019. I want to talk to him today about a range of things at the state level on climate, affecting climate policy. Matt, it’s really good to have you as Minister here on your old campus. That makes it very special for us and for you, I guess. You would have fond memories of politics and study here at UTS.

Matt Kean: I think there was a lot more politics than study if you ask my parents when I attended UTS, but this hall brings back some frightening memories for me because I remember sitting plenty of exams here Bob, but I have to say it’s a great honour for me to be here today. The contribution that you have made to public life and in particular to environment policy, to that ideal of leaving our planet to our kids better than we found it, is unrivalled. So, thank you for making time for me.

Bob Carr: Well it’s terrific to talk to a minister in a conservative government who will take up these themes and we’ll explore what we might call the [eco-right] before we’ve finished, but net zero emissions by 2050. What does it mean when a state government – and all state governments have said this is their goal – when a state government signs up to that? Can it make a difference, especially if Canberra doesn’t say they’re committed to net zero emissions by 2050?

Matt Kean: Absolutely. We have got the largest economy in the nation and therefore we are a huge contributor to the nation’s carbon emissions. If there’s not going to be a target at the national level then the different states and territories can set their own targets to make sure that we are setting ourselves up to succeed in that low carbon world that’s coming. That’s what we have done in New South Wales. We have set a net zero by 2050 target, but we have also set an interim target of 35 per cent emissions reduction by 2030.

There’s a very good reason we’ve done that Bob. If you don’t have a goal you can’t focus the minds and the energies to achieve it. We intend to achieve it, not just because it’s good for our environment, but it’s also good for the future prosperity of our state.

Bob Carr: Just tell us how it shapes what government does and then whether you think it has an effect on private sector, that is boardroom decisions about investment. To have a state government say this is where we want to be in 2050.

Matt Kean: Absolutely. It’s focusing all the machinery of government towards hitting that objective. When we’re making decisions about the type of energy mix that we’re going to have, we do so with our net zero target in mind. When we are looking at investment in new transport options, new rail, new buses, we do that with our net zero policies in mind, so it has a huge impact on government policy and a flow on effect to the private sector. We mean business here in New South Wales. We want to see us succeed in a low carbon global economy and the best way to do that is to upgrade our electricity system, to upgrade our transport system and to take advantage of all the opportunities that low cost reliable energy can bring.

Bob Carr: A practical example though of where it affects what the state government does, what the state government builds, having that goal.

Matt Kean: Absolutely. We will take, for example, our policy to upgrade our bus fleet. I mean that’s a huge investment. That’s a capital investment that will be expected to last for another decade. Right now, because of our net zero policies, we have determined that we will be upgrading our bus fleet to electric buses. That’s a great win for consumers because they’ll get cheaper forms of transport. It’s a great win for the environment as well because we’ll get cleaner cities and also less noisy cities. It just shows that by having the right policy settings at the macro level you’ll see the right results at the micro level.

Bob Carr: Have you got any examples where an investment decision made in a boardroom, but is in the private sector, might have been shaped by people saying at that boardroom table, well we better move in this direction. The state government is saying net zero emissions by 2050, even if Canberra is not saying it.

Matt Kean: Well we are seeing that in the energy space in my portfolio. We are seeing boardrooms, for example Origin Energy, that are looking to transition to cleaner forms of energy. They’re looking at building a pumped hydro dam, for example, on the Shoalhaven dam system. Now if the New South Wales Government didn’t have the right policy settings in place, they might be looking at other forms of generation to meet their customer’s needs. That is a great example of the impact it’s having in boardrooms across the state.

Bob Carr: Well tell us more about pumped hydro and what its potential is and how it works, how it fits in to the demands of the grid that’s becoming increasingly dependent on renewable energy.

Matt Kean: Well pumped hydro is something that I have just become fascinated by. It works so well with renewables. Basically, by installing low cost renewables into the system, so very, very cheap energy, in fact energy generation can provide negative energy prices at some parts of the day. That means that the generators are paying consumers to take electricity. In those times of the day you can pump water up the hill to a dam, store it there and then when it’s still or it’s cloudy, you can then drop the water down the hill and create electricity. It works hand in glove with renewables and that’s the thing…

Bob Carr: When is the first of these? Are we waiting for Snowy Hydro to pull this off? Smaller proposals around the state.

Matt Kean: Well Snowy Hydro is the big one that’s captured the public mood. I mean it’s 2000 megawatts of cheap clean reliable electricity that we installed into the system. Well we’re expecting that to come online by 2026/2027. If you listen to Paul Broad, he’s even more ambitious than that, but that’s vital because that’s providing that replacement baseload power that people talk about to enable us to provide electricity to families and businesses across New South Wales when the sun is not shining and the wind is not blowing.

Bob Carr: What proportion of the 35 per cent reduction by 2030 will be represented by Snowy Hydro?

Matt Kean: Well Snowy Hydro 2000 megawatts, peak demand in New South Wales is about 14,000 megawatts, so it’s a substantial contribution. What we want to see is as our existing coal-fire power stations come to the end of their lives, and let’s face it these are old bits of equipment, it’s got nothing to do with climate change, it’s just that they need to be upgraded, the cheapest way to upgrade our existing forms of generation is with a mix of wind, solar, storage like pumped hydro for example and also batteries and demand response. There will be a suite of measures to ensure that consumers and businesses in this state get access to some of the cheapest electricity in the world.

Bob Carr: Batteries, how do you see – how do you retrofit our electricity grid with batteries and what contribution are they going to make to that 2030 goal?

Matt Kean: Batteries can play a very important role, not just in providing electricity when the sun is not shining and the wind is not blowing, but also stabilising the grid. The frequency and voltage that’s required to ensure that we get power to our homes when we need it, that needs to be maintained at a certain level and batteries can come in, in milliseconds, to provide that firming capacity. We need to value those services. Right now, the regulatory environment and the market signals that guide the electricity system, don’t value the services that batteries provide. That’s why government needs to get up to speed and make sure that our regulatory environment and our investment signals can accommodate these new forms of technology that can provide services into the grid.

Bob Carr: What sort of a disadvantage is it that Canberra is holding out against the commitment that your government and every other state and territory government has made about net zero emissions by 2050 and a commitment that is getting international support? It’s hard to nominate the nations not signed up to it.

Matt Kean: Well what I’ll say at the macro level is that right now 50 per cent of the world’s GDP has signed up to achieve net zero emissions by 2050. What that means for Australia is that 60 per cent of our trading partners have committed to zero carbon emissions by 2050. That means that Australia, the markets that we currently rely on, that underride our prosperity, the products that they’re demanding are changing. Their desire for fossil fuels like coal and LNG is going to change into the future. Rather than ignoring that reality we should be taking advantage, transitioning to take advantage of the opportunities that will come with that, but also making sure that we don’t get left behind.

Bob Carr: Yeah. The role of gas. The Prime minister talks about a gas led recovery. There are some important distinctions to be made here. Gas is a peaking fuel, for example. It’s often said to be a necessary part of firming up the system, a system increasingly dependent on renewables, but also gas, it tends to get confused with gas as a feedstock. There are some industries, some manufacturing industries that use gas to produce their output. What’s the way, from your perspective, what’s the best way of negotiating through this debate about the future of gas?

Matt Kean: Well let’s get a couple of facts on the table. The majority of gas used in New South Wales is, as you said, for manufacturing purposes for industry. It’s about 80 per cent of our gas use in New South Wales. Only 20 per cent is used to generate electricity and it’s a very expensive way to generate electricity. Does gas have a role to play in ensuring we keep the lights on and keep prices stable? Absolutely. Absolutely it does, but in the short term, because we know that by installing storage like pumped hydro into the system, which takes a while to build, so we’re not expecting Snowy to come online until at least 2026/2027, so we’ve got a gap.

We need to make sure that we can fuel that gap, particularly at times of peak demand and gas will have a role to play in fulfilling that function. But in the long term as you get more storage built into the system, as batteries come down the cost curve, as other technologies enter the mix, I think it would be a very big risk to be betting on gas to meet our long-term energy needs.

Bob Carr: It is expensive. I was talking to Malcolm Turnbull recently about this and he said the fact is gas in Australia is very expensive. It’s not like gas in Saudi Arabia. That’s got significance for its domestic use and for its competitiveness on world markets. It’s not cheap.

Matt Kean: Well that’s exactly right. One of the reasons that we have seen such increases in cost of living pressures for families in New South Wales and indeed across the country is because we are paying the international gas price. That’s about $12 per petajoule. We need to make sure – to get gas at affordable levels you need it down at about $4 or $2. Now, the concern I have with the Narrabri Project is that that’s pretty expensive gas. Even though it’s cheap in the international price, it’s still about $7.80 at the wellhead. In order to get that gas to the market you have to build the pipelines and that comes with additional cost.

We’re not talking about low cost gas entering the market, but does gas have a role to play in our energy mix at the moment? Absolutely it does. Will it in the long-term? Right now, I think there are so many opportunities to see other forms of that firming technology come into the system that it would be a risky thing to say yes, gas has a long-term future.

Bob Carr: I think one relevant consideration is that despite what the so-called Liveris report said, there doesn’t seem to be – there can hardly be – it can’t be afforded a view in Canberra that we can subsidise gas fields, gas pipelines and even as a government buy it and on sell it. That seemed to be a bit of a fantasy. The expectations about gas that have been entertained in that draft interim report that came out of the taskforce.

Matt Kean: Look, I know the taskforce is not just looking at using gas for energy generation, it’s also looking to support manufacturing in New South Wales and indeed across the country. As the Energy Minister though in New South Wales, my focus is on delivering the cheapest form of reliable energy available and right now that’s not gas. That’s wind, it’s solar, it’s pumped hydro, it’s batteries. Gas has a role to play at the moment in firming up that intermittent renewable energy, but we know that there are new technologies coming on board that will ensure that families and businesses in the state are able to access even cheaper electricity.

Bob Carr: How big is the – how important to all of this is the plan to have renewable zones across New South Wales? I take it the rationale is to concentrate investment in solar and wind in those areas where they can feed directly into the grid and you don’t face the cost and the delay of extending the grid to where someone has inconveniently located a vast industrial scale wind or solar facility. I take it that’s the rationale.

Matt Kean: Well the rationale behind it is the idea that you can’t just build renewables. You need to coordinate the build for renewables with the build of transmission lines, with the build of storage and with the build of firming technologies. By doing the renewable energy science we are coordinating all of those things at the one time. What we don’t want to see is what happened with the closure of Hazelwood in Victoria. Hazelwood closed and we saw eye wateringly high electricity prices and we saw a lack of supply in the system which led to things like black outs. That’s not acceptable for the citizens and businesses of New South Wales.

We need to make sure that if we’re going to avoid that we replace existing infrastructure with the new infrastructure before the existing infrastructure closes. By creating and coordinating the build of our renewable energy science, we can make sure that we have installed that new generation and new capacity into the system before the old system closes and we manage the risk of price hikes and black outs that consumers would otherwise face.

Bob Carr: Ross Garnaut, when I spoke to him on this campus and our interview is available online on this site, made a big feature of Australia and hydrogen. I just wonder where New South Wales stands in readiness to get into hydrogen and confidence about what it can do and about the distinction between green hydrogen and alternatives.

Matt Kean: Well the only opportunity for New South Wales to get a slice of the hydrogen action is to do green hydrogen because we don’t have the geology here in New South Wales to be able to capture the carbon and store it. Victoria has that opportunity to do blue hydrogen, as does Queensland, because they’ve got former gas wells. We don’t have natural gas wells here in New South Wales so the only option for us is green hydrogen. Green hydrogen, in order to do that, you need to install a lot of renewable energy and get that really low cost energy when its abundant in the middle of the day into the system to do the electrolysis process.

Now the electrolysis process is what splits the hydrogen and the oxygen, so it takes water and splits those molecules and creates the hydrogen. We need to install that cheap reliable renewable energy into the system if we are going to do energy intensive processes like electrolysis to get the hydrogen. We know there is a huge opportunity and a huge market for this product. We have already said that 60 per cent of our trading partners have committed to net zero emissions. They need clean forms of energy to run their economies. We know how to do the replacement of electrons through renewable energy et cetera, but the big challenge is how are we going to replace molecules?

How are we going to provide a replacement feedstock for diesel and gas and also petrol? That is the opportunity that hydrogen brings. If you’ve got a country like Japan, you’ve got a country like South Korea that has already said that hydrogen is going to be their pathway to get to net zero, there is a huge market available for us. We have got the relationships. We have got the ability – we have already got the pre-existing trade links with those countries. We need to take advantage of this opportunity, grab it, because it will create jobs, see investment coming into New South Wales and could underwrite our prosperity for future generations whilst solving the same challenges that other countries are facing.

Bob Carr: The Institute for Sustainable Futures on this campus, a very highly regarded institute, has a special interest in energy saving measures. Experts think that we can get to ambitious goals like your one of a 35 per cent reduction in emissions by 2035 by doing more with efficient use of energy. How much harder can this state push to see that we deliver on this front? Retrofit for old buildings, for example. There’s been a lot of talk about it. The Clinton Foundation used to sound off about retrofitted buildings and getting a business plan that makes it profitable for owners to do that. It seems action has been a little slow. I see old buildings in the city that are profligate in their use of energy for air-conditioning and heating. Can we do more?

Matt Kean: We can do so much more. The supply side gets all the attention, so people want to build new generation, build transmission lines and pumped hydro facilities, but demand response solutions is a really cheap way to deliver electricity. What that means is that times of peak demand, big users of electricity, can turn off their air-conditioners or power down to ensure that there is enough capacity in the system to provide the electricity the rest of us need. But it’s not just about turning things off at times of peak demand. It’s also about using electricity when it’s abundant and cheap, so using technologies to make sure that we are turning our pool pumps on during the middle of the day.

If you add up all the pool pumps in New South Wales that’s basically the equivalent of the Liddell Coal Fire Power Station. If you could get them working when there’s a lot of really cheap energy in the middle of the day, so move them out of the peak time, you can save a lot of money in terms of having to invest in new generation. So, it’s not one thing that’s going to be a silver bullet in ensuring we get that cheap reliable energy. It’s going to be a suite of measures which include new generation, storage, transmission, but also demand response and it’s about making sure that we have got the right policy settings in place, the right regulatory environment, to incentivise people, the private sector, to go out and deliver those opportunities.

Bob Carr: Is it happening fast enough to make a significant contribution to that 2030 goal of a 35 per cent reduction?

Matt Kean: We are confident that we will hit our 35 per cent reduction by 2030. In fact, I’m aiming to exceed it. Is it happening fast enough? No. We don’t have the right market settings, we don’t have the right price signals and we don’t have the right regulatory settings in place to ensure that private sector can deliver those outcomes. We need change and that’s exactly what I am focused on at the moment.

Bob Carr: Here’s a mystery I want you to unpick for me. I couldn’t believe over the last decade or longer, over the last 20 years, why people on the conservative side of politics aren’t prepared to take up an environmental agenda. I mean why should there be a barrier to someone who says look, I’m a conservative about values, I want fiscal discipline, I want a private sector economy, but I want to save the great natural areas and I am concerned about the scientific consensus on climate. Why has there been such a barrier to the development of what Americans call an eco-right? A mystery to me.

Matt Kean: I’m not sure what the answer is. I think there can be plenty of debate about how we tackle climate change and the right policy settings to achieve those objectives, but there should be no debate about the need to do it. Now, I think that those on the centre right of politics should be arguing this case. Arguing for freer markets to achieve these goals. Arguing for the conservation of our natural environment. I mean what could be more important to conservatives than making sure we leave our planet to our kids better than we found it.

What could be more important to conservatives than creating jobs, driving investment, improving living standards? I’m not just arguing for these things because I care about our environment and I want to conserve it. I’m arguing these things because I’m a free market capitalist who believes that the way to grow our economy and underwrite our future prosperity is to tackle climate change decisively and responsibly.

Bob Carr: Matt Kean, Minister for Environment and Energy in New South Wales. Thanks for speaking to us here on the UTS campus which you used to inhabit in another life. Good luck with the program. Good luck with those zones in particular. I think they can make a crucial difference in leaping over that challenge of linking renewable energy to the grid.

Matt Kean: No, thank you so much for the opportunity to be here and this is a really important policy area, not just for the future of our environment, but for the future of our economy.

Bob Carr: Matt Kean, thank you very much.